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7 Common Money Mistakes You Might Make in Your 20s



Managing personal finances can be daunting for anyone, but it can be especially difficult for young adults entering the workforce for the first time. Unfortunately, many financial mistakes are common at this age and can have long-term consequences.

But what are the most common financial mistakes people make in their 20s? And how can you avoid them? In this blog post, we help you understand the most common money mistakes and how to avoid them. By being proactive and learning from money mishaps, you can set yourself up for a bright financial future.


Mistake #1: Ignoring Your Credit Score

Did you know that your credit history impacts nearly every aspect of your life? Not only does your FICO credit score determine whether you qualify for a loan or low interest rates, but it can even affect your ability to get a job or an apartment!

More than that, any poor decisions you make now can come back to haunt you in your 30s and 40s. Building good credit takes time, and developing healthy financial habits in your 20s starts with monitoring your credit score.


Why monitor your credit?

There are several reasons to check your credit report and credit scores regularly. Monitoring your credit helps you:

  • Better understand how certain financial decisions affect your credit.

  • Be more aware of the information lenders see when pulling your report.

  • Spot and clear up any mistakes or inaccuracies.

Credit scores aren’t included in credit reports, so you should check both often. You can obtain a free credit report from each of the three major credit bureaus once a year. As for your credit score, check with your bank or credit card company to see if they provide free credit scores as a customer perk.


Mistake #2: Not Having a Budget

One of the most common financial mistakes is failing to budget. But why is budgeting important?

For starters, budgeting helps you track your spending and expenses. It can also help you meet financial goals such as building your savings, contributing to a retirement fund, or making a major purchase.

Whether you’re still in college or just beginning your career, you’re probably not bringing in as much money as you’d like. Budgeting identifies how much of your limited income you should allocate to expenses and how much you can afford to spend on non-essentials (a.k.a. the fun stuff).


How to create a budget

There are many types of budgeting methods, but they all boil down to noting your take-home pay, calculating your monthly bills and expenses, setting a savings goal, and sticking to the plan.

Learn how to create a budget and turn your financial decisions into lifelong habits that help you financially flourish.


Mistake #3: Not Having Emergency Savings

Financial setbacks typically result from unexpected expenses. Maybe your car breaks down and needs a new transmission, or an injury puts you in the emergency room. You can’t anticipate these scenarios, but you can prepare for them by having an emergency fund.


What is an emergency fund?

An emergency fund is a special savings account kept separate from your regular savings. Ideally, your emergency fund should consist of three to six months’ worth of your regular expenses.

For example, let’s say your total monthly expenses, including your rent, car payment, groceries, and bills, come in at $1,750. In this case, you should have at least $5,250 in your emergency fund.

Why base your emergency fund on a few months’ worth of expenses? Well, consider what might happen if you lose your income due to a layoff or physical injury. You’ll need enough money to cover ongoing expenses while you’re out of work.

Saving this much money for emergencies can seem impossible when you’re young and just starting out. Fortunately, emergency loans are always an option until you’ve built up a healthy emergency savings fund.


Mistake #4: Accumulating Excessive Debt

Few people are in a position to pay cash for big-ticket essentials, which is why most of us end up with student loans, a mortgage, and a car payment. Going into some amount debt is inevitable – but taking on too much debt is one of the worst money mistakes you can make.

The more debt you have, the more interest accumulates, making it harder to pay down the principal. As a result, having too much debt can prevent you from saving money or paying your bills on time.


How to avoid excessive debt

There are several ways you can avoid taking on more debt than you can afford. For starters, you can:

  • Avoid impulse purchases.

  • Shop with cash instead of credit.

  • Learn the difference between good debt and bad debt.

  • Avoid financing “lifestyle” purchases like furniture and clothing.

  • Pay off your credit card balance every month.

  • Choose short-term loans you can pay off quickly.

  • Make payments on time to avoid late fees.

  • Avoid having too many credit cards.

  • Compare lenders and interest rates when you do need a loan.


Mistake #5: Leaving Money on the Table

If you see $20 bucks on the ground, you pick it up, right? But what if you learned that you’re passing up hundreds, if not thousands, of dollars because you’re not taking advantage of financial opportunities?

The phrase “leaving money on the table” refers to when you fail to claim money for yourself. There are many ways you might be missing out on free cash, such as:

  • Not applying for scholarships.

  • Not charging enough for your services.

  • Not negotiating your salary or asking for a raise.

  • Not taking advantage of employer-matching 401k contributions.

  • Skipping the high-yield savings account.

  • Failing to cancel unused subscriptions.

  • Not investing your money.

You might even consider negotiating your bills for a lower rate. You’ll need to assert yourself to negotiate your payments or interest rate, but doing so could save you a nice chunk of change!


Mistake #6: Lifestyle Creep

Do your expenses tend to go up after you start earning more money? If so, you’ve experienced a phenomenon called lifestyle creep. Also known as lifestyle inflation, lifestyle creep is one of those bad financial habits that can sneak up on you.

Just think about how your spending habits might change if you receive a large windfall, such as an inheritance, or if you get a new job or promotion that comes with a higher salary. You might buy a newer car, subscribe to more streaming services, dine out more often. . .

Basically, the more money you make, the greater your living expenses tend to be. If this sounds familiar, there are a few things you can do to combat lifestyle creep:


1. Avoid splurge purchases

Going on a shopping spree is common after increasing your income, but ask yourself if an item is really necessary before buying. Sure, having the latest phone would be nice, but do you need to upgrade now just because you make more money? Take some time to consider these financial decisions so you’re not inflating your monthly expenses.


2. Stick to a budget

Budgeting is essential no matter your income level. You may want to increase your savings goal with every raise, but you should still follow a budget to ensure you’re not living beyond your means.


3. Hold off on any major lifestyle changes

Making significant lifestyle changes – such as upgrading from a basic rental to a luxury apartment – can wreak havoc on your monthly budget. It’s better to plan major purchases like a home or car at least a few months in advance to evaluate whether you need to make the change. . . and whether the added expense is worth it.


4. Treat yourself – within reason

Making more money is a big deal, so don’t be afraid to celebrate your success every once in a while. Rather than splurging every payday, however, you might plan a monthly trip to a special restaurant or buy yourself a nice gift every quarter.


5. Automate your savings and bill pay

Take the guesswork out of meeting monthly financial goals with automatic transfers and payments. Most banks and credit unions offer a service that automatically transfers a portion of each paycheck into your savings account. You can also set up automatic bill pay through your bank or with each individual creditor.


Mistake #7: Putting Off Retirement Planning

Let’s face it – when you’re at the bottom of the career ladder, retirement is probably the furthest thing from your mind. But starting retirement planning in your 20s is one of the smartest financial moves you can make.

The biggest advantage of retirement planning in your 20s is that you have time on your side. Thanks to time and compound interest, even small contributions can grow significantly over the next few decades.

More than that, planning for retirement now can help you establish good financial habits that will serve you well throughout your life. So, even if retirement seems far away, it's never too soon to start thinking about it and taking steps to ensure your future financial security.


Learning Financial Lessons

Your 20s can be a rollercoaster ride for your finances. At this age, any poor decision can feel like a huge financial mistake — but you can bounce back! While most experts will say you can either set yourself up for success or make costly mistakes, in reality, you'll make both good and bad decisions. The key is to learn from your money mistakes and grow from them.


At HB Capital, we believe that setbacks are just opportunities for epic comebacks. Apply now to get the help you need to get back on track.


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